SUSTAINABILITY

INNOVATION +

John Hersey

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 | by Ram Nidumolu, C.K. Prahalad,
and M.R. Rangaswami

WHY
SUSTAINABILITY
IS NOW THE KEY DRIVER
OF INNOVATION
THERE’S NO ALTERNATIVE TO SUSTAINABLE DEVELOPMENT.
Even so, many companies are convinced ists, and sometimes between consumer
that the more environment-friendly they activists and governments. It resembles
become, the more the effort will erode a three-legged race, in which you move
their competitiveness. They believe it forward with the two untied legs but
will add to costs and will not deliver im- the tied third leg holds you back. One
mediate financial benefits. solution, mooted by policy experts and
Talk long enough to CEOs, particu- environmental activists, is more and in-
larly in the United States or Europe, and creasingly tougher regulation. They ar-
their concerns will pour out: Making our gue that voluntary action is unlikely to
operations sustainable and developing be enough. Another group suggests edu-
“green” products places us at a disadvan- cating and organizing consumers so that
tage vis-à-vis rivals in developing coun- they will force businesses to become sus-
tries that don’t face the same pressures. tainable. Although both legislation and
Suppliers can’t provide green inputs or education are necessary, they may not
transparency; sustainable manufactur- be able to solve the problem quickly or
ing will demand new equipment and completely.
processes; and customers will not pay Executives behave as though they
more for eco-friendly products during have to choose between the largely so-
a recession. That’s why most executives cial benefits of developing sustainable
treat the need to become sustainable products or processes and the financial
as a corporate social responsibility, di- costs of doing so. But that’s simply not
vorced from business objectives. true. We’ve been studying the sustain-
Not surprisingly, the fight to save the ability initiatives of 30 large corporations
planet has turned into a pitched battle for some time. Our research shows that
between governments and companies, sustainability is a mother lode of organi-
between companies and consumer activ- zational and technological innovations

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 SUSTAINABILITY
INNOVATION + Why Sustainability Is Now the Key Driver of Innovation

that yield both bottom-line and top-line returns. such as the Greenhouse Gas Protocol, and sector-
Becoming environment-friendly lowers costs be- specific ones, such as the Forest Stewardship Coun-
cause companies end up reducing the inputs they cil code and the Electronic Product Environmental
use. In addition, the process generates additional Assessment Tool – that nongovernmental agencies
revenues from better products or enables compa- and industry groups have drawn up over the past
nies to create new businesses. In fact, because those two decades. These standards are more stringent
are the goals of corporate innovation, we find that than most countries’ laws, particularly when they
smart companies now treat sustainability as innova- apply to cross-border trade.
tion’s new frontier. It’s tempting to adhere to the lowest environ-
Indeed, the quest for sustainability is already mental standards for as long as possible. However,
starting to transform the competitive landscape, it’s smarter to comply with the most stringent
which will force companies to change the way they rules, and to do so before they are enforced. This
think about products, technologies, processes, and yields substantial first-mover advantages in terms
business models. The key to progress, particularly of fostering innovation. For example, automo-
in times of economic crisis, is innovation. Just as bile manufacturers in the United States take two
some internet companies survived the bust in 2000 or three years to develop a new car model. If GM,
to challenge incumbents, so, too, will sustainable Ford, or Chrysler had embraced the California Air
corporations emerge from today’s recession to up- Resources Board’s fuel consumption and emissions
set the status quo. By treating sustainability as a standards when they were first proposed, in 2002,
goal today, early movers will develop competencies it would be two or three design cycles ahead of its
that rivals will be hard-pressed to match. That com- rivals today – and poised to pull further ahead by
petitive advantage will stand them in good stead, 2016, when those guidelines will become the basis
because sustainability will always be an integral of U.S. law.
part of development. Enterprises that focus on meeting emerging
It isn’t going to be easy. Enterprises that have norms gain more time to experiment with materi-
started the journey, our study shows, go through als, technologies, and processes. For instance, in the
five distinct stages of change. They face different early 1990s Hewlett-Packard realized that because
challenges at each stage and must develop new ca- lead is toxic, governments would one day ban lead
pabilities to tackle them, as we will show in the solders. Over the following decade it experimented
following pages. Mapping the road ahead will save with alternatives, and by 2006 the company had
companies time – and that could created solders that are an amalgam of tin, silver,
be critical, because the clock is and copper, and even developed chemical agents to
IDEA ticking. tackle the problems of oxidization and tarnishing
during the soldering process. Thus HP was able to
IN BRIEF
comply with the European Union’s Restriction of
» Sustainability isn’t the bur- STAGE 1 Hazardous Substances Directive, which regulates
den on bottom lines that many
executives believe it to be. In fact, VIEWING the use of lead in electronics products, as soon as it
took effect, in July 2006.
becoming environment-friendly COMPLIANCE Contrary to popular perceptions, conforming to
can lower your costs and increase
your revenues. That’s why sustain-
AS OPPORTUNITY the gold standard globally actually saves companies
ability should be a touchstone for The first steps companies must money. When they comply with the least stringent
all innovation. take on the long march to sus- standards, enterprises must manage component
tainability usually arise from the sourcing, production, and logistics separately for
» In the future, only companies
law. Compliance is complicated: each market, because rules differ by country. How-
that make sustainability a goal will
achieve competitive advantage. Environmental regulations vary ever, HP, Cisco, and other companies that enforce
That means rethinking business by country, by state or region, a single norm at all their manufacturing facilities
models as well as products, tech- and even by city. (In 2007 San worldwide benefit from economies of scale and can
nologies, and processes. Francisco banned supermarkets optimize supply chain operations. The common
from using plastic bags at check- norm must logically be the toughest.
» Becoming sustainable is a five-
stage process, and each stage has out; San Diego still hasn’t.) In ad- Companies can turn antagonistic regulators
its own challenges. Here’s how to dition to legal standards, enter- into allies by leading the way. For instance, HP has
tackle them and emerge from the prises feel pressured to abide by helped shape many environmental regulations in
recession ahead of the pack. voluntary codes – general ones, Europe, and it uses the resulting brownie points

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 to advantage when necessary. In 2001 the Euro- That’s particularly helpful
pean Union told hardware manufacturers that in difficult economic times,
after January 2006 they could not use hexavalent when corporations are des-
chromium – which increases the risk of cancer in perate to boost profits.
anyone who comes in contact with it – as an anti- Companies develop
corrosion coating. Like its rivals, HP felt that the sustainable operations by
industry needed more time to develop an alterna- analyzing each link in the
tive. The company was able to persuade regulators
to postpone the ban by one year so that it could
value chain. First they make
changes in obvious areas,
Vendors
complete trials on organic and trivalent chromium
coatings. This saved it money, and HP used the time
such as supply chains, and
then they move to less ob-
consume
to transfer the technology to more than one vendor.
The vendors competed to supply the new coatings,
vious suspects, such as re-
turned products.
as much as
which helped reduce HP’s costs. Supply chains. Most 80% of the
Companies in the vanguard of compliance natu- large corporations induce
rally spot business opportunities first. In 2002 HP suppliers to become envi- resources
learned that Europe’s Waste Electrical and Elec- ronment-conscious by of-
tronic Equipment regulations would require hard- fering them incentives. For used by a
ware manufacturers to pay for the cost of recycling instance, responding to
products in proportion to their sales. Calculating people’s concerns about the supply chain.
that the government-sponsored recycling arrange- destruction of rain forests
ments were going to be expensive, HP teamed up and wetlands, multinational
with three electronics makers – Sony, Braun, and corporations such as Cargill
Electrolux – to create the private European Recy- and Unilever have invested in technology develop-
cling Platform. In 2007 the platform, which works ment and worked with farmers to develop sustain-
with more than 1,000 companies in 30 countries, able practices in the cultivation of palm oil, soy-
recycled about 20% of the equipment covered by beans, cacao, and other agricultural commodities.
the WEEE Directive. Partly because of the scale of This has resulted in techniques to improve crop
its operations, the platform’s charges are about 55% yields and seed production.
lower than those of its rivals. Not only did HP save Some companies in the West have also started
more than $100 million from 2003 to 2007, but it laying down the law. For example, in October 2008
enhanced its reputation with consumers, policy Lee Scott, then Wal-Mart’s CEO, gave more than
makers, and the electronics industry by coming up 1,000 suppliers in China a directive: Reduce waste
with the idea. and emissions; cut packaging costs by 5% by 2013;
and increase the energy efficiency of products
supplied to Wal-Mart stores by 25% in three years’
STAGE 2 time. In like vein, Unilever has declared that by
2015 it will be purchasing palm oil and tea only
MAKING VALUE CHAINS from sustainable sources, and Staples intends that
SUSTAINABLE most of its paper-based products will come from
Once companies have learned to keep pace with sustainable-yield forests by 2010.
regulation, they become more proactive about envi- Tools such as enterprise carbon management,
ronmental issues. Many then focus on reducing the carbon and energy footprint analysis, and life-cycle
consumption of nonrenewable resources such as assessment help companies identify the sources
coal, petroleum, and natural gas along with renew- of waste in supply chains. Life-cycle assessment is
able resources such as water and timber. The drive particularly useful: It captures the environment-
to be more efficient extends from manufacturing related inputs and outputs of entire value chains,
facilities and offices to the value chain. At this stage, from raw-materials supply through product use to
corporations work with suppliers and retailers to returns. This has helped companies discover, for in-
develop eco-friendly raw materials and compo- stance, that vendors consume as much as 80% of the
nents and reduce waste. The initial aim is usually energy, water, and other resources used by a supply
to create a better image, but most corporations end chain, and that they must be a priority in the drive
up reducing costs or creating new businesses as well. to create sustainable operations.

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 SUSTAINABILITY
INNOVATION + Why Sustainability Is Now the Key Driver of Innovation

Operations. Central to building a sustainable while increasing capacity by 20%. It is also introduc-
supply chain are operational innovations that lead ing Boeing 777s, which will reduce fuel consump-
to greater energy efficiency and reduce companies’ tion by a further 18%. FedEx has developed a set of
dependence on fossil fuels. Take the case of FedEx, 30 software programs that help optimize aircraft
which deploys a fleet of 700 aircraft and 44,000 schedules, flight routes, the amount of extra fuel on
motorized vehicles that consume 4 million gallons board, and so on. The company has set up 1.5-mega-
of fuel a day. Despite the global slowdown, the watt solar-energy systems at its distribution hubs
company is replacing old aircraft with Boeing 757s in California and Cologne, Germany. It uses hybrid
as part of its Fuel Sense program, although it will vans that are 42% more fuel efficient than conven-
postpone ordering new ones until 2010. This will tional trucks and has replaced more than 25% of
reduce the company’s fuel consumption by 36% its fleet with smaller, more fuel-efficient vehicles.
Following some other pioneers, FedEx
recently turned its energy-saving ex-
pertise into a stand-alone consulting
SUSTAINABILITY CHALLENGES, business that, it hopes, will become a
profit center.
COMPETENCIES, AND OPPORTUNITIES
Most companies go through five stages on the path
to becoming sustainable.

STAGE 1 STAGE 2 STAGE 3 STAGE 4

Viewing Compliance Making Value Chains Designing Sustainable Developing New
as Opportunity Sustainable Products and Services Business Models

CENTRAL CHALLENGE CENTRAL CHALLENGE CENTRAL CHALLENGE CENTRAL CHALLENGE

To ensure that compliance To increase efficiencies To develop sustainable offer- To find novel ways of deliver-
with norms becomes an op- throughout the value chain. ings or redesign existing ones ing and capturing value,
portunity for innovation. to become eco-friendly. which will change the basis of
COMPETENCIES NEEDED competition.
COMPETENCIES NEEDED >> Expertise in techniques COMPETENCIES NEEDED
>> The ability to anticipate and such as carbon management >> The skills to know which COMPETENCIES NEEDED
shape regulations. and life-cycle assessment. products or services are most >> The capacity to understand
unfriendly to the environment. what consumers want and to
>> The skill to work with other >> The ability to redesign
figure out different ways to
companies, including rivals, to operations to use less energy >> The ability to generate real
meet those demands.
implement creative solutions. and water, produce fewer public support for sustainable
emissions, and generate less offerings and not be consid- >> The ability to understand
INNOVATION OPPORTUNITY waste. ered as “greenwashing.” how partners can enhance the
>> Using compliance to induce >> The capacity to ensure that >> The management know-
value of offerings.
the company and its partners
suppliers and retailers make how to scale both supplies
to experiment with sustain- INNOVATION OPPORTUNITIES
their operations eco-friendly. of green materials and the
able technologies, materials,
manufacture of products. >> Developing new delivery
and processes. technologies that change
INNOVATION OPPORTUNITIES
value-chain relationships in
>> Developing sustainable INNOVATION OPPORTUNITIES
significant ways.
sources of raw materials and >> Applying techniques such
components. as biomimicry in product >> Creating monetization
development. models that relate to services
>> Increasing the use of clean
rather than products.
energy sources such as wind >> Developing compact and
and solar power. eco-friendly packaging. >> Devising business models
that combine digital and
>> Finding innovative uses for
physical infrastructures.
returned products.

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 Workplaces. Partly because of environmental Returns. Concerns about cutting waste invari-
concerns, some corporations encourage employ- ably spark companies’ interest in product returns.
ees to work from home. This leads to reductions in In the United States, returns reduce corporate prof-
travel time, travel costs, and energy use. One-tenth itability by an average of about 4% a year. Instead
of the corporations in our sample had from 21% to of scrapping returned products, companies at this
50% of their employees telecommuting regularly. stage try to recapture some of the lost value by reus-
Of IBM’s 320,000 employees, 25% telecommute, ing them. Not only can this turn a cost center into
which leads to an annual savings of $700 million a profitable business, but the change in attitude
in real estate costs alone. AT&T estimates that it signals that the company is more concerned about
saves $550 million annually as a result of telecom- preventing environmental damage and reducing
muting. Productivity rises by 10% to 20%, and job waste than it is about cannibalizing sales.
satisfaction also increases when people telecom- Cisco, for example, had traditionally regarded
mute up to three days a week. For example, at the the used equipment it received as scrap and recy-
health-care services provider McKesson, the group cled it at a cost of about $8 million a year. Four years
that reported the highest job satisfaction in 2007 ago it tried to find uses for the equipment, mainly
consisted of 1,000 nurses who worked from home. because 80% of the returns were in working condi-
tion. A value-recovery team at Cisco identified in-
ternal customers that included its customer service
organization, which supports warranty claims and
service contracts, and the labs that provide techni-
cal support, training, and product demonstrations.
STAGE 5 In 2005 Cisco designated the recycling group as a
Creating Next- business unit, set clear objectives for it, and drew
Practice Platforms up a notional P&L account. As a result, the reuse
of equipment rose from 5% in 2004 to 45% in 2008,
CENTRAL CHALLENGE and Cisco’s recycling costs fell by 40%. The unit has
To question through the sus- become a profit center that contributed $100 mil-
tainability lens the dominant lion to Cisco’s bottom line in 2008.
logic behind business today.
When they create environment-friendly value
chains, companies uncover the monetary benefits
COMPETENCIES REQUIRED
>> Knowledge of how renew- that energy efficiency and waste reduction can de-
able and nonrenewable liver. They also learn to build mechanisms that link
resources affect business sustainability initiatives to business results, as the
ecosystems and industries. Cisco example shows. As a result, environmental
>> The expertise to synthesize concerns take root within business units, allowing
business models, technolo- executives to tackle the next big challenge.
gies, and regulations in dif-
ferent industries.

INNOVATION OPPORTUNITIES STAGE 3

>> Building business
platforms that will enable
DESIGNING SUSTAINABLE
customers and suppliers to PRODUCTS AND SERVICES
manage energy in radically
At this stage executives start waking up to the fact
different ways.
that a sizable number of consumers prefer eco-
>> Developing products that friendly offerings, and that their businesses can
won’t need water in catego-
ries traditionally associated score over rivals by being the first to redesign ex-
with it, such as cleaning isting products or develop new ones. In order to
products. identify product innovation priorities, enterprises
>> Designing technologies have to use competencies and tools they acquired
that will allow industries to at earlier stages of their evolution.
use the energy produced as a Companies are often startled to discover which
by-product. products are unfriendly to the environment. When
Procter & Gamble, for example, conducted life- cycle

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 SUSTAINABILITY
INNOVATION + Why Sustainability Is Now the Key Driver of Innovation

assessments to calculate the amount of

energy needed to use its products, it
found that detergents can make U.S.
households energy guzzlers. They spend
3% of their annual electricity budgets to
heat water for washing clothes. If they
switched to cold-water washing, P&G

A FEW SIMPLE
reckoned, they would consume 80 bil-
lion fewer kilowatt-hours of electricity
and emit 34 million fewer tons of carbon

RULES dioxide. That’s why the company made

the development of cold-water deter-
gents a priority. In 2005 P&G launched
Smart corporations follow these simple rules in their effort Tide Coldwater in the United States and
to become sustainable. Ariel Cool Clean in Europe. The trend
has caught on more in Europe than in
DON’T START FROM THE ney that takes companies through the United States. By 2008, 21% of Brit-
PRESENT. If the starting point is five stages – and lasts a decade or ish households were washing in cold
the current approach to business, more – can’t be completed with- water, up from 2% in 2002; in Holland
the view of the future is likely to out course corrections and major the number shot up from 5% to 52% of
be an optimistic extrapolation. changes. Although directional households. During the current reces-
It’s better to start from the future. consistency is important, tactical sion P&G has continued to promote
Once senior managers establish flexibility is critical. cold-water products, emphasizing their
a consensus about the shape BUILD COLLABORATIVE lower energy costs and compact pack-
of things to come, they can fold CAPACITY. Few innovations, be aging. If cold-water washing catches on
that future into the present. They they to comply with regulations worldwide, P&G will be able to cash in
should ask: What are the mile- or to create a new line of products, on the trend.
stones on the path to our desired can be developed in today’s world Likewise, Clorox was surprised to
future? What steps can we take unless companies form alliances learn that household cleaning products
today that will enable us to get with other businesses, nongov- are the second biggest environmental
there? How will we know that we ernmental organizations, and gov- concern – after automobiles – in the
are moving in that direction? ernments. Success often depends United States. Its market research also
ENSURE THAT LEARNING on executives’ ability to create showed that 15% of consumers treat
PRECEDES INVESTMENTS. new mechanisms for developing health and sustainability as major cri-
Top management’s interest in products, distributing them, and teria when making purchase decisions,
sustainability sometimes leads to sharing revenues. and 25% to 35% take environmental ben-
investments in projects with- USE A GLOBAL PRESENCE efits into consideration.
out an understanding of how to TO EXPERIMENT. Multinational In 2008 Clorox became the first main-
execute them. Smart companies corporations enjoy an advan- stream consumer products company to
start small, learn fast, and scale tage in that they can experiment launch a line of nonsynthetic cleaning
rapidly. Each step is broken into overseas as well as at home. The products. It spent three years and more
three phases: experiments and pi- governments of many developing than $20 million to develop the Green
lots, debriefing and learning, and countries have become concerned Works line, delaying the launch twice
scaling. These companies bench- about the environment and are en- to ensure that all five original products
mark, but the goal is to develop couraging companies to introduce performed as well as or better than con-
next practices – not merely mimic sustainable products and pro- ventional options in blind tests.
best practices. cesses, especially for those at the Clorox had to tackle several mar-
STAY WEDDED TO THE bottom of the pyramid. It’s easier keting issues before launching Green
GOAL WHILE CONSTANTLY for global enterprises to foster Works. It decided to charge a 15% to 25%
ADJUSTING TACTICS. Smart innovation in emerging markets, premium over conventional cleaners to
executives accept that they will where there are fewer entrenched reflect the higher costs of raw materials.
have to make many tactical ad- systems or traditional mind-sets Green Works products are still cheaper
justments along the way. A jour- to overcome. than competing products, which carry a

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 25% to 50% markup over synthetic ones. After much delivery business. Instead of
discussion, the marketing team chose to put the shipping copies of a docu-
Clorox logo on the Green Works line to signal that ment from, say, Seattle to
it performs as well as conventional Clorox products. New York, FedEx now asks
The company persuaded the Sierra Club – a lead- customers if they would like
ing environmental group in the United States – to to electronically transfer the
endorse Green Works. Although it sparked contro- master copy to one of its of-
versy among activists, this partnership strength-
ened Clorox’s credentials, and in 2008 the company
fices in New York. It prints
and binds the document
Companies are
paid nearly $500,000 to the Sierra Club as its share
of revenues from the line. Finally, Clorox struck spe-
at an outlet there and can
deliver copies anywhere in
often startled to
cial arrangements with retail chains such as Wal-
Mart and Safeway to ensure that consumers could
the city the next morning.
The customer gets more
discover which
easily find Green Works products on shelves. time to prepare the mate- products are
By the end of 2008 Green Works had grown the rial, gains access to better-
U.S. natural cleaners market by 100%, and Clorox quality printing, and can unfriendly
enjoyed a 40% share of the $200 million market. choose from a wide range of
Green Works sales weakened in the fourth quar- document formats that Fed- to the
ter of 2008 because of the recession, but they re- Ex provides. The document
bounded in the first quarter of 2009. The tailwind travels most of the way elec- environment.
has encouraged Clorox to launch more sustainable tronically and only the last
products: In January 2009 it introduced biodegrad- few miles in a truck. FedEx’s
able cleaning wipes, and the following June it intro- costs shrink and its services
duced nonsynthetic detergents, where it will run become extremely eco-friendly.
into rival P&G. Some companies have developed new models
To design sustainable products, companies have just by asking at different times what their busi-
to understand consumer concerns and carefully ness should be. That’s what Waste Management,
examine product life cycles. They must learn to the $14 billion market leader in garbage disposal,
combine marketing skills with their expertise in did. Two years ago it estimated that some $9 bil-
scaling up raw-materials supplies and distribution. lion worth of reusable materials might be found in
As they move into markets that lie beyond their the waste it carried to landfills each year. At about
traditional expertise, they have to team up with the same time, its customers, too, began to realize
nongovernmental organizations. Smart companies that they were throwing away money. Waste Man-
like P&G and Clorox, which have continued to in- agement set up a unit, Green Squad, to generate
vest in eco-friendly products despite the recession, value from waste. For instance, Green Squad has
look beyond the public-relations benefits to hone partnered with Sony in the United States to collect
competencies that will enable them to dominate electronic waste that used to end up in landfills. In-
markets tomorrow. stead of being just a waste-trucking company, Waste
Management is showing customers both how to re-
cover value from waste and how to reduce waste.
STAGE 4 New technologies provide start-ups with the
ability to challenge conventional wisdom. Calera,
DEVELOPING NEW a California start-up, has developed technology to
BUSINESS MODELS extract carbon dioxide from industrial emissions
Most executives assume that creating a sustain- and bubble it through seawater to manufacture ce-
able business model entails simply rethinking the ment. The process mimics that used by coral, which
customer value proposition and figuring out how builds shells and reefs from the calcium and magne-
to deliver a new one. However, successful models sium in seawater. If successful, Calera’s technology
include novel ways of capturing revenues and deliv- will solve two problems: Removing emissions from
ering services in tandem with other companies. In power plants and other polluting enterprises, and
2008 FedEx came up with a novel business model minimizing emissions during cement production.
by integrating the Kinko’s chain of print shops The company’s first cement plant is located in the
that it had acquired in 2004 with its document- Monterey Bay area, near the Moss Landing power

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 SUSTAINABILITY
INNOVATION + Why Sustainability Is Now the Key Driver of Innovation

plant, which emits 3.5 million tons of carbon diox- development of cross-industry platforms to man-
ide annually. The key question is whether Calera’s age the energy needs of cities, companies, buildings,
cement will be strong enough when produced in and households. Technology vendors such as Cisco,
large quantities to rival conventional Portland ce- HP, Dell, and IBM are already investing to develop
ment. The company is toying with a radical busi- these platforms, as are utilities like Duke Energy,
ness model: It will give away cement to customers SoCal Edison, and Florida Power & Light.
while charging polluters a fee for removing their •••
emissions. Calera’s future is hard to predict, but its Two enterprisewide initiatives help companies
technology may well upend an established industry become sustainable. One: When a company’s top
and create a cleaner world. management team decides to focus on the prob-
Developing a new business model requires ex- lem, change happens quickly. For instance, in 2005
ploring alternatives to current ways of doing busi- General Electric’s CEO, Jeff Immelt, declared that
ness as well as understanding how companies can the company would focus on tackling environmen-
meet customers’ needs differently. Executives must tal issues. Since then every GE business has tried
learn to question existing models and to act entre- to move up the sustainability ladder, which has
preneurially to develop new delivery mechanisms. helped the conglomerate take the lead in several
As companies become more adept at this, the expe- industries. Two: Recruiting and retaining the right
rience will lead them to the final stage of sustain- kind of people is important. Recent research sug-
able innovation, where the impact of a new product gests that three-fourths of workforce entrants in the
or process extends beyond a single market. United States regard social responsibility and en-
vironmental commitment as important criteria in
selecting employers. People who are happy about
STAGE 5 their employers’ positions on those issues also en-
joy working for them. Thus companies that try to
CREATING NEXT-PRACTICE become sustainable may well find it easier to hire
PLATFORMS and retain talent.
Next practices change existing paradigms. To de- Leadership and talent are critical for developing
velop innovations that lead to next practices, ex- a low-carbon economy. The current economic sys-
ecutives must question the implicit assumptions tem has placed enormous pressure on the planet
behind current practices. This is exactly what led to while catering to the needs of only about a quarter
today’s industrial and services economy. Somebody of the people on it, but over the next decade twice
once asked: Can we create a carriage that moves that number will become consumers and producers.
without horses pulling it? Can we fly like birds? Can Traditional approaches to business will collapse, and
we dive like whales? By questioning the status quo, companies will have to develop innovative solutions.
people and companies have changed it. In like vein, That will happen only when executives recognize a
we must ask questions about scarce resources: Can simple truth: Sustainability = Innovation.
we develop waterless detergents? Can we breed rice
that grows without water? Can biodegradable pack- Ram Nidumolu ([email protected]) is the
aging help seed the earth with plants and trees? founder and CEO of InnovaStrat, a Santa Cruz–
Sustainability can lead to interesting next-practice based firm that helps companies design and imple-
platforms. One is emerging at the intersection of ment sustainability strategies and new business
the internet and energy management. Called the models. C.K. Prahalad ([email protected]) is the
smart grid, it uses digital technology to manage Paul and Ruth McCracken Distinguished University
power generation, transmission, and distribution Professor of Strategy at the University of Michigan’s
from all types of sources along with consumer de- Ross School of Business and a member of the board
mand. The smart grid will lead to lower costs as well of directors of the World Resources Institute. M.R.
as the more efficient use of energy. The concept has Rangaswami ([email protected]) is the founder of
been around for years, but the huge investments the Corporate Eco Forum, a global organization of
going into it today will soon make it a reality. The senior executives, and the cofounder of the Sand Hill
grid will allow companies to optimize the energy Group, a San Francisco–based strategic manage-
use of computers, network devices, machinery, tele- ment, investment, and advisory firm.
phones, and building equipment, through meters,
Reprint R0909E To order, see page 123.
sensors, and applications. It will also enable the

64 Harvard Business Review | September 2009 | hbr.org

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